“When a man with money meets a man with experience, the man with experience leaves with money and the man with money leaves with experience.”

Thursday, April 02, 2009

Charlton For Sale

The dire state of the club's finances was demonstrated today, with the announcement of several proposed transactions involving its property assets.

In order to improve the working capital position of the club, it will seek shareholder approval to proceed with the proposed sales.

Presumably it is the absence of usual routes to improve working capital (especially an overdraft facility), that have led to this decision.

The transfer window is closed too, not that we have many saleable playing assets left.

The fact that the ongoing credit crunch has thus likely forced the club's hand in this regard is ironic, because the concept of 'working capital' can perhaps best be understood in the context of the troubled banks.

There are some who believe the banks merely have a 'liquidity' problem ie. they are 'solvent', but cannot easily convert assets into cash, or raise new cash in order to service short-term debts.

Meanwhile others believe the banks are fundamentally 'insolvent' ie. the value of their liabilities exceeds its assets. In such a scenario, only a debt restructuring (a reduction in liabilities), can obviate an outright liquidation.

In this sense therefore, it's somewhat reassuring that the club's directors have identified a shortage of working capital as the issue. The alternative presumably would have been to go into administration, akin to an admission of insolvency.

Out in the 'real world', employees at many similarly working capital deprived companies have been forced to accept pay cuts, shorter working weeks or compulsory redundancy.

Of course in the sheltered world of professional football, such a concept would be anathema, not least because their pay is contractual over a fixed term, regardless of fitness or form. I'd be surprised if our players have the audacity to look the directors in the eye, when they collect their pay cheque.

I'm not smart enough to understand all of the legal ramifications involved with these types of sale and leasebacks, but suffice to say that any such 'related party' transactions are always potentially conflicted.

I must confess for example that I wasn't aware that the club had any genuinely 'independent directors', although they have reportedly approved the commercial rate of the leaseback.

It is not possible meanwhile to ascertain from the 2008 annual accounts, at what 'carrying value' the assets were held at because they are all lumped under 'Freehold Land & Buildings', for which the majority is represented by The Valley.

Anyhow, given that the Directors involved in the transaction (albeit seemingly via their respective pension funds and foundations respectively), also collectively own the majority of the club's debt and equity too, then there is not an obvious incentive to undertake in any shenanigans.

The problem of course, is that despite no doubt taking independent valuation advice, the properties would never have been offered for sale to outsiders, even if this might have led to a higher bid (unlikely but who knows?).

However impressive it may be, the training ground is just that, a training ground. Even if the Directors someday sell their interest in them to a non-Addick, then I see little harm done. After the trauma of 1985-1992, most fans would baulk at the sale of The Valley however.

Assuming the 25-year lease survives a change of ownership, then even if the new owners ultimately sell their interest, then it seems to make little difference.

Much longer-term (and frankly who can even see beyond next season at this point?), then assuming that the land has little residential or commercial development potential, then what better lessee would the new owner want than a professional football club?

The most interesting comment in the article was, "Charlton have also retained the right to repurchase these freehold properties under certain circumstances on defined terms."

This implies to me that this is hopefully merely a short-term, but nonetheless necessary step to ensure the club survives this severe downturn in its onfield fortunes. Derek Chappell meanwhile has lent the club a further £500,000 in a separate transaction.

When one observes these types of transactions at a well-run club, albeit one experiencing near-term problems, it does make you wonder whether the whole football club-buying mania is finished for now, at least outside of the truly 'big clubs'.

Who in their right mind for example could conclude that Charlton was an interesting investment, when it is reduced to flogging its training ground to its Directors just to pay its bills?

An expensive plaything maybe, but an investment opportunity? Forget it.

On a more philosophical note, the legal effort that has to go into the raising of just £1.5million, surely puts into perspective the unbelievable sums that those same Directors have permitted various managers to fritter away in recent seasons.

As I have argued quite vehemently on this blog before, if only they asked more difficult questions of Messrs. Dowie and Pardew, before several multiples of these amounts were wasted in fees and salaries on grossly overrated players.

If next season we become a simpler and frankly rather boring club again, then that would surely be a very good thing.

5 Comments:

Obviously I am unable to take into account the salaries, but I would suggest that Dowie's transfer purchases were better than Pardew's. You could also argue that when you take into account our dire situation when we were selling them, the players Dowie bought were not (on aggregate) over valued.

Also if you look at our relative positions Pardew's transfer budget, and some of the buys, were obscene for a second division club. Paying £3m plus for two strikers that had never performed at even Championship level was insane.

Dowie gambled on established players, Pardew gambled of potential. It's interesting to note that many of the major purchased Dowie made are still playing in the Premier League where as Pardew's are failing to make an impact in the Championship.

They have indeed dug deep, but their actions are not entirely altruistic. They're taking cash that yields virtually nothing, and buying assets that presumably yield 5-6%? Admittedly there are millions of more interesting investment opportunities than freehold land and buildings in Eltham, but anyhow.

It also helps protect their existing debt/equity investment in the club.

I'm not going to suggest that Curbishley didn't make mistakes, but on the whole he did sign some players that suitabily justified their fee during their time with us, even if they didn't move on for a profit.